The US economy grew at a 2.4 percent annualised rate in the first quarter, less than the previously-estimated 2.5 percent. Slower inventory accumulation contributed to the downward revision. In contrast, consumer spending increased at a revised 3.4 percent rate compared to the previous estimate of 3.2 percent.

Meanwhile, the US housing market continues to show signs of recovery. Pending home sales rose 0.3 percent in April after a 1.5 percent increase in March.

Thursday, 30 May 2013

The OECD released its latest economic outlook on Wednesday. It sees world real GDP increasing by 3.1 percent this year and 4 percent in 2014. Across OECD countries, GDP is projected to increase by 1.2 percent this year and 2.3 percent in 2014.

The US economy is expected to lead growth among the major OECD economies, growing by 1.9 percent this year and 2.8 percent in 2014. The euro area economy is expected to contract by 0.6 percent this year and then rebound by 1.1 percent in 2014. Japan's economy is expected to grow by 1.6 percent in 2013 and 1.4 percent in 2014.

However, the IMF also noted “important challenges” for China. It warned in particular that “the rapid growth in total social financing—a broad measure of credit—raises concerns about the quality of investment and its impact on repayment capacity”, and that “growth has become too dependent on the continued expansion of investment”.

Indeed, Bloomberg reports that the “economy is proving less responsive to credit”. Credit rose 58 percent to a record 6.16 trillion yuan in January-to-March but each $1 in credit firepower added the equivalent of just 17 cents in GDP, down from 29 cents last year and 83 cents in 2007.

Brazilian inflation had accelerated for nine straight months through March to 6.59 percent, above the top of the central bank’s target range of 2.5 percent to 6.5 percent, before slowing to 6.49 percent in April.

In contrast, the European Central Bank is more likely to ease than tighten, especially with the eurozone's largest economy, Germany, reporting an increase in unemployment in May amid moderate inflation on Wednesday. The number of people out of work rose 21,000 this month while inflation accelerated slightly to 1.5 percent.

While the fall in global stocks on Thursday had been accompanied by weak manufacturing data from China, this time, there was more positive news. China reported on Monday that industrial companies' profits rose 9.3 percent in April from a year earlier, accelerating from a 5.3 percent increase in March.

So the turbulence in Japanese markets appears to reflect concerns over Japan itself rather than external economic factors. The yen climbed for a third day on Monday amid concern the Bank of Japan is struggling to control a jump in government bond yields.

Meanwhile, though, the global central bank easing campaign continues. On Monday, the Bank of Israel cut interest rates for the second time this month. It reduced its benchmark interest rate by another quarter point to 1.25 percent, its lowest level since March 2010.

Monday, 27 May 2013

After rallying strongly over the previous few weeks, stock markets finally took a tumble last week amid signs that some investors are seeing low prospective returns from equities going forward.

The Standard & Poor's 500 Index fell 1.1 percent last week, the most in more than a month. The STOXX Europe 600 Index fell 1.7 percent, its first loss after four consecutive weekly gains. The MSCI Asia Pacific Index fell 2.7 percent, its biggest weekly decline since the week ended 13 July 2012.

The biggest losses occurred on Thursday.

Japan's Nikkei 225 kicked off the world-wide decline that day by plunging 7.3 percent, the most since the aftermath of the March 2011 earthquake and tsunami. The fall was mostly attributed to rising government bond yields. The Bank of Japan responded by injecting 2 trillion yen into the financial system.

Other markets also declined on Thursday. Elsewhere in Asia, the Hang Seng fell 2.5 percent. The STOXX Europe 600 lost 2.1 percent. The S&P 500 fell as much as 1.2 percent during its trading session but managed to recover to end just 0.3 percent lower for the day.

Earlier in the week, the S&P 500 had hit an all-time high of 1669.16 on Tuesday.

Indeed, the falls last week had ironically occurred just days after Goldman Sachs equity strategist David Kostin raised his forecast for the S&P 500 after its recent record-breaking run.

In a report released on Monday, Kostin said that the US stock market would climb a further 5 percent to 1750 by the end of the year and continue to advance in the next few years to hit 2100 in 2015.

“Our positive 2013 outlook for S&P 500 has played out much faster than we expected,” he wrote.

However, others think that the strong gains already made in markets may limit future returns.

Lim said that the average annual return on bond yields will be about 1.9 percent over the next decade while equities may offer a 1.6 percent median real return a year.

Lim said that “more and more investors are being crowded into searching for yields and taking risk” and this “leaves little on the table to cushion adverse outcomes”.

Lim's stance is similar to John Hussman of Hussman Funds.

In an article on Monday, Hussman described current market conditions as “overvalued, overbought, overbullish”. He estimated a prospective 10-year total annual nominal return on the S&P 500 of just 2.9 percent.

Furthermore, with bond yields rising, Hussman said that conditions are now similar to several major market peaks in the past.

“In general, the initial decline from these peaks tends to occur as a sharp 6-10% market drop over a handful of weeks, typically followed by a partial recovery attempt toward the prior peak,” he said.

Now, the S&P 500 has not seen a sharp drop recently. Its fall last week was mild.

However, the Nikkei 225's loss on Thursday did fall within the range Hussman mentioned as typical following a peak, but in one day rather than over several weeks. It reflects the kind of volatility that often marks the end of a bull market.

Of course, this does not necessarily mean that Japan's stock market has peaked. Back in 2007, China's Shanghai Composite Index fell 8.8 percent on 27 February. Other markets' reaction to that fall was greater than to the recent Japanese fall, with the STOXX Europe 600 falling 3.0 percent that day and the S&P 500 falling 3.5 percent.

However, Chinese stocks recovered strongly after that. By the time it peaked in October 2007, the Shanghai Composite was double its level at the start of 27 February.

Still, some investors are clearly concerned that at current levels, prospective long-term returns from equities have diminished. This could leave stocks vulnerable to further sell-offs.

However, the selling pressure on Thursday dissipated during the US trading session. The S&P 500 fell just 0.3 percent after having fallen as much as 1.2 percent earlier in the day.

The fall in Japanese stocks was mostly attributed to rising government bond yields. The Bank of Japan responded by announcing on Thursday that it was injecting 2 trillion yen into the financial system to stem volatility.

Not helping markets was a weak manufacturing report from China on Thursday. HSBC's preliminary manufacturing PMI for China fell to 49.6 in May from 50.4 in April, putting it back into contraction territory.

Europe's economy also showed further contraction on Thursday, although there were signs of improvement. Markit's flash composite index based on purchasing managers surveys rose to 47.7 in May from 46.9 in April. The manufacturing index rose to 47.8 from 46.7 while the services index rose to 47.5 from 47.0.

At least US growth looks likely to have been sustained, based on data on Thursday. Initial claims for state unemployment benefits fell 23,000 to 340,000 last week. New single-family home sales rose 2.3 percent in April. Markit's preliminary manufacturing PMI for May continued to show expansion despite falling to 51.9 from 52.1 in April.

Thursday, 23 May 2013

Federal Reserve Chairman Ben Bernanke gave no clear indication of when tightening of monetary policy is likely to begin in his testimony to the US Congress on Wednesday. From Reuters:

The Federal Reserve's monetary stimulus is helping the economy recover but the central bank needs to see further signs of traction before taking its foot off the gas pedal, Fed Chairman Ben Bernanke said on Wednesday...

"If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases," he said...

"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said.

The lack of assurance of continued monetary easing, however, was enough to send US stocks down on Wednesday. The S&P 500 fell 0.8 percent, pulling back from the record high the previous day.

Ten-year Treasury yields rose 11 basis points to 2.04 percent, topping 2 percent for the first time since March, and the US dollar rose 0.5 percent to near its strongest level since 2010.

A sustained recovery in the housing market will probably increase the probability of tightening. The National Association of Realtors reported on Wednesday that existing home sales rose 0.6 percent in April to an annual rate of 4.97 million units, the highest since November 2009. The inventory of homes on the market rose 11.9 percent but remains at just 5.2 months' worth of sales.

Elsewhere, there were mixed economic data from the UK on Wednesday. Retail sales fell 1.3 percent in April but factory orders improved in May, with the Confederation of British Industry's total order book balance improving to -20 this month from -25 in April.

Meanwhile, the Bank of England could yet provide further monetary stimulus after a report on Tuesday showed that inflation fell in the UK in April. Inflation eased to 2.4 percent last month from 2.8 percent in March, with almost half of that drop coming from weaker petrol and diesel costs.

Also on Tuesday, the Federal Reserve provided no indication that it is about to wind down its own monetary stimulus. St Louis Fed President James Bullard told reporters after delivering a lecture in Frankfurt that he “can't envision a good case to be made for tapering unless the inflation situation turns around”. New York Fed President William Dudley told the Japan Society in New York on Tuesday that he could not be sure whether policymakers would next reduce or increase the amount of purchases due to the “uncertain” economic outlook.

Over the weekend in China, the government reported that home prices rose in April in 67 of 70 major cities it monitors. This was down from 68 in March.

Calculations by Reuters showed that home prices rose 4.9 percent in April from a year ago, the fastest pace since April 2011. However, on a monthly basis, prices rose 1.0 percent, down from 1.2 percent in March.

Monday, 20 May 2013

Growth in the major developed economies accelerated in the first quarter of 2013. With stock markets around the world also rallying strongly recently, it looks like the aggressive monetary policies of major central banks have been successful.

Among the major developed economies, the United States, Japan and the United Kingdom reported growth in the first quarter. The euro area was the laggard, contracting in the first quarter for the sixth consecutive quarter.

Nevertheless, all the major developed economies saw better economic growth in the first quarter than in the previous quarter.

Nevertheless, investors appear sanguine, with stock markets continuing to rally last week. The Standard & Poor’s 500 Index rose 2.1 percent last week to close at yet another record high of 1,667.47. The STOXX Europe 600 Index rose 1.2 percent last week to 308.72, its fourth consecutive weekly gain. The Nikkei 225 stock average jumped 3.6 percent to close at 15,138.12.

If stock markets lead the economy, as most economists think, then the outlook for the major developed economies is good.

The economic performance of the major developed economies as well as the apparent confidence of investors provides some vindication of the aggressive monetary stimulus, including quantitative easing, implemented by the central banks of the US, euro area, Japan and the UK over the past few years.

Indeed, last week, the International Monetary Fund released a paper that looked at the effects of the unconventional monetary policies in the US, euro area, Japan and the UK. While the paper noted that there is considerable uncertainty about the size of the impact of these policies, it nevertheless concluded that they helped to “avoid acute risks” to financial markets, “significantly reduced long-term yields” and “significantly improved macroeconomic conditions”, with both GDP growth and inflation reacting “positively and substantially” to bond purchases.

However, the paper also said that there are some “key issues that central banks engaged in unconventional measures need to consider”.

One issue is that the measures will face diminishing effectiveness.

Another is the possibility of greater risk taking by financial institutions as a result of accommodative monetary policies and the expectation of central bank intervention, which could undermine financial stability.

Also, capital flows to other countries could increase and create the potential for future abrupt reversals.

With their much-larger balance sheets now filled with assets with longer-dated maturities, central banks could face significant losses on their assets when the time comes for them to tighten monetary policies. This would in turn impact fiscal balances through reduced profit transfers to government.

Also, as central banks have little experience in tightening under such monetary conditions, there is a risk of interest rate volatility and overshooting during the tightening process.

However, for now, most of the advanced economies and stock markets appear to be enjoying the fruits of central banks' bold monetary policies.

Japanese core machinery orders surged 14.2 percent in March. This still left core orders for the January-March quarter unchanged from the previous quarter though and manufacturers surveyed by the government expect core orders to fall 1.5 percent in the April-June quarter.

The Japanese government is clearly keen to ensure more sustained growth. In a speech to business executives and academics on Friday, Prime Minister Shinzo Abe announced that it aims to boost domestic private investment over the next three years and triple infrastructure exports and double farm, fisheries and marine exports to 1 trillion yen by 2020.

Investors sold stocks on Thursday after several Federal Reserve officials recently voiced concerns over the Fed's asset purchases and raised the possibility of an end to these purchases. From Bloomberg:

Dallas Fed President Richard Fisher said today buying mortgage bonds risks disrupting the market, while Philadelphia Fed President Charles Plosser said, “it’s not good for the bank to be holding lots of mortgage paper.” Jeffrey Lacker of Richmond said to reporters yesterday the Fed should “get out of the credit allocation business.”

“It’s clear that the labor market has improved since September” when the Fed began its third round of asset purchases, [San Francisco Fed President John Williams] said today in the text of a speech in Portland, Oregon. “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year.

Weak US economic data on Thursday also did not help markets.

Housing starts plunged 16.5 percent in April. The report was softened though by a 14.3 percent rise in building permits.

Inflation is also fading, with consumer prices falling in April for the second consecutive month. The consumer price index fell 0.4 percent last month, the biggest decrease since December 2008, after falling 0.2 percent in March.

Thursday, 16 May 2013

The eurozone economy contracted 0.2 percent in the first quarter. This followed a 0.6 percent contraction in the previous quarter and was its sixth quarter of contraction.

The German economy managed to expand 0.1 percent in the first quarter but the French economy contracted 0.2 percent and the Italian economy shrank 0.5 percent.

The weak eurozone economy may be a drag on the US economy. A report on Wednesday showed that US industrial production fell 0.5 percent in April, reversing the 0.3 percent increase in March.

Further indication of weakness in US manufacturing on Wednesday came from the Federal Reserve Bank of New York, whose index of conditions for manufacturers in the region fell to -1.4 in May from 3.1 in April.

In another indication of possible weakness for the economy, another report on Wednesday showed that producer prices in the US fell 0.7 percent in April, the biggest decrease since February 2010.

At least the US housing market remains in recovery. A report on Wednesday showed that the National Association of Home Builders/Wells Fargo housing market index rose to 44 in May from 41 in April.

The weak economic data did not stop the S&P 500 from making another record high on Wednesday, although Japan's Nikkei 225 stole some of the thunder in financial markets by rising 2.3 percent to close above 15,000 for the first time since 2007.

The strong performance of Japanese stocks recently seem to have been justified by a report on Thursday showing that the economy grew 0.9 percent in the first quarter, the fastest pace in a year.

Private consumption grew 0.9 percent. Net exports contributed 0.4 percentage point to growth after having subtracted from growth in the previous three quarters.

In Europe, improved market conditions has allowed European governments to go back to markets to raise funds. Spain sold one-year bills on Tuesday at a yield below 1 percent for the first time since April 2010. The Netherlands sold five-year notes at a record-low yield of 0.611 percent on Tuesday.

Better economic data from the euro area on Tuesday helped. The ZEW index of German investor confidence edged up to 36.4 in May from 36.3 in April. Industrial production in the 17-nation euro region rose 1 percent in March from February.

Industrial output in China rose 9.3 percent in April, accelerating from an increase of 8.9 percent in March.

Fixed-asset investment rose 20.6 percent in the first four months of the year, slightly down from 20.9 percent in the first three months.

Retail sales rose 12.8 per cent year-on-year in April, up from a 12.6 percent increase in March.

Real estate investment rose 21.1 percent in the first four months of 2013 from a year earlier, accelerating from an increase of 20.2 in the first quarter. Revenues from property sales in the first four months eased slightly to 59.8 percent though after having surged 61.3 percent in the first three months.

Helping to boost property and other investment in China has been a rise in shadow banking activities. According to Moody's, China's shadow banking activities have risen 67 percent since the end of 2010, reaching an estimated total of 29 trillion yuan at the end of last year, equivalent to 55 percent of China's GDP.

Monday, 13 May 2013

Stock markets around the world continued to rally last week despite signs that global economic growth may be slowing.

Stocks in the United States rose for a third consecutive week last week. The Standard and Poor's 500 Index climbed 1.2 percent to close at 1,633.70, a record high.

European stocks also rose for a third consecutive week last week. The STOXX Europe 600 Index climbed 1.3 percent to 304.99, its highest level since June 2008.

Japan was the outperformer among developed stock markets last week. The Nikkei 225 rose 6.7 percent, its biggest weekly gain since December 2009, to close the week at 14,607.54, its highest level since January 2008.

A report from Markit Economics last week based on purchasing managers surveys around the world showed that the JPMorgan global all-industry output index fell to 51.9 in April from 53.0 in March.

JPMorgan Global All-Industry Indices

March

April

Output

53.0

51.9

New orders

52.2

51.7

Input prices

54.5

52.1

Employment

51.4

50.4

David Hensley, director of Global Economics Coordination at JPMorgan, noted that the latest purchasing managers surveys showed that global economic output rose at its “slowest pace in six months” in April.

However, investors are apparently betting on more monetary stimulus from central banks to continue boosting markets, and the latter largely delivered.

The Reserve Bank of Australia and Bank of Korea both cut interest rates last week. The RBA cut its benchmark rate by 25 basis points to 2.75 percent while the BOK cut its rate by 25 basis points to 2.5 percent.

However, the Bank of England, which already has a near-zero benchmark rate of 0.5 percent and a policy of bond-buying, left monetary policy unchanged at its monetary policy meeting last week.

Japanese stocks performed even better on Friday as the yen weakened past 100 per dollar. The Nikkei 225 rose 2.9 percent to a 5½-year high of 14,607.54. The Nikkei was up 6.7 percent for the week, the biggest weekly gain since December 2009.

Economic data from Japan on Friday were mixed. The Cabinet Office's economy watchers survey showed that the service sector current conditions index fell to 56.5 in April from 57.3 in March. However, the future conditions index rose to 57.8 from 57.5.

Meanwhile, economic data out of Germany on Friday were also positive. Exports rose 0.5 percent in March while imports rose 0.8 percent. The trade surplus narrowed slightly to 17.6 billion euros from 17.7 billion in February.

In the UK, the goods trade deficit shrank to 9.056 billion pounds in March from 9.165 billion pounds in February as exports jumped 5.0 percent but construction output fell 2.4 percent in the first quarter to the lowest level since the last quarter of 1994.

Friday, 10 May 2013

The global central bank easing trend continued on Thursday with the Bank of Korea cutting its benchmark interest rate by 25 basis points to 2.5 percent.

However, the Bank of England left its benchmark interest rate unchanged at 0.5 percent and announced no additional bond purchases after its monetary policy meeting on Thursday.

The need for further monetary stimulus by the BoE may have receded a little after a report on Thursday showed that UK industrial production rose 0.7 percent in March following a 0.9 percent increase in February.

The probability of additional monetary stimulus has also decreased in China after inflation there accelerated to 2.4 percent in April from 2.1 percent in March.

There were also positive signs for the Japanese economy on Thursday. The Cabinet Office's index of coincident economic indicators rose 0.8 point in March according to a preliminary report, suggesting that the economy is maintaining its recovery. However, the index of leading economic indicators fell 0.1 point.

In the US, a report on Thursday showed that initial claims for state unemployment benefits fell by 4,000 last week to 323,000, the lowest level since January 2008. The four-week moving average fell by 6,250 to 336,750, the lowest level since November 2007, just before the last recession.

Not all the data from the US on Thursday were positive. Another report showed that wholesale inventories rose 0.4 percent in March. While an increase in inventories is often a sign that economic growth has picked up, this report also showed that sales by wholesalers fell 1.6 percent in March, the biggest decline in four years.

In market action, US stocks finally ended their five-day record-breaking run on Thursday. The S&P 500 fell 0.4 percent after having set consecutive record highs on the five previous trading sessions.

However, the trade data may have been too good to be true. From AFP/CNA:

"We believe the strong trade growth is not indicative of a growth recovery," said Zhang Zhiwei, a Hong Kong-based economist with Nomura International, said in a research note.

Importers and exporters may have overstated their business to seek to evade Chinese government controls on capital movements and channel funds into the country, he said...

Royal Bank of Scotland economist Louis Kuijs estimated China's exports rose only 5.7 per cent year-on-year in April after adjusting for discrepancies between data from China and figures from the importing markets.

Elsewhere, Germany reported on Wednesday that industrial production rose 1.2 percent in March. This followed a 0.6 percent increase in February.

Wednesday, 8 May 2013

US stock indices rose to new record highs on Tuesday, with the Dow Jones Industrial Average closing above 15,000 for the first time ever after rising 0.6 percent to 15,056.20. The S&P 500 rose 0.5 percent to close at 1,625.96.

In Japan, investors came back from a holiday to push the Nikkei 225 up 3.6 percent on Tuesday to 14,180.24, its highest close since June 2008.

Markets got a lift early in the day after the Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to a record low of 2.75 percent, continuing the worldwide trend towards easier monetary policy.

Easier monetary policy has lifted not just stock prices but house prices as well. US home prices rose 1.9 percent in March, a report from CoreLogic showed on Tuesday. Prices rose 10.5 percent from a year ago, the biggest year-over-year increase in seven years.

However, Europe's economy has shown few signs of a recovery, with Tuesday's data coming out mixed. While German factory orders jumped 2.2 percent in March, the same amount of increase as in February, French industrial orders fell 0.9 percent in March, reversing a 0.8 percent increase in February.

Tuesday, 7 May 2013

Markit's services PMI for the euro area rose to 47.0 in April from 46.4 in March, helping to pull the composite index up to 46.9 from 46.5. That still left the composite index below 50, indicating contraction, for the 15th consecutive month.

Another report on Monday showed that retail sales in the euro area fell 0.1 percent in March after having fallen 0.2 percent in February.

With the eurozone economy still looking weak, European Central Bank President Mario Draghi reiterated his readiness to cut interest rates again on Monday, helping to push the euro down against the US dollar.

Meanwhile, China's economy has not been spared the global economic weakness. A report on Monday showed that the HSBC services PMI for China fell to 51.1 in April, the lowest since August 2011, from 54.3 in March.

However, things are looking up again in the US, with the positive Friday employment report being followed on Monday by a report from the Federal Reserve showing that banks eased lending standards to businesses over the last three months.

Monday, 6 May 2013

The United States stock market hit a record high last week despite mixed reports on the economy.

The Standard & Poor’s 500 Index rose 2.0 percent to 1,614.42 last week, its highest level on record. Stocks rose 2.0 percent over the last two trading days of the week alone, with a strong employment report on Friday cementing the gains.

The employment report from the Labor Department showed that nonfarm payroll employment rose by 165,000 in April. This was higher than the 140,000 estimated by economists surveyed by Bloomberg. In addition, revisions added a total of 114,000 jobs for February and March. The unemployment rate fell to 7.5 percent, the lowest in four years.

However, another report on Friday on factory orders provided a negative signal on the economy. The Commerce Department reported that new orders for manufactured goods fell 4.0 percent in March. While a plunge in volatile civilian aircraft orders contributed to the fall, even excluding transportation equipment, orders fell 2.0 percent.

Reports from purchasing managers surveys earlier in the week had also indicated slowing manufacturing activity. The Institute for Supply Management's manufacturing PMI fell to 50.7 in April from 51.3 in March and Markit's manufacturing PMI fell to 52.1 from 54.6.

Activity in the services sector may also be slowing. Another report on Friday from the Institute for Supply Management showed that its non-manufacturing index fell to 53.1 in April from 54.4 in March.

US economic growth may also be adversely affected by the continuing weakness in Europe. Data last week showed that the European Commission's economic sentiment indicator for the euro area fell to 88.6 in April from 90.1 in March and Markit's eurozone manufacturing PMI fell to 46.7 in April from 46.8 in March.

The European Central Bank did cut its main policy interest rate by 25 basis points to a record low of 0.50 percent after its monetary policy meeting on Thursday though whereas the Federal Reserve announced no new policy measures after its meeting on Wednesday.

In a presentation at the 10th annual Strategic Investment Conference last week, PIMCO Chief Executive Officer Mohamed El-Erian noted “an enormous contrast between the markets and the real economy”. He said that while markets are rallying, developed economies are seeing lower growth due to ongoing deleveraging.

He said that markets are rallying despite weak economic growth because central banks are providing monetary support. And because the weak economic growth is likely to persist, central banks “have little choice other than to continue on their current trajectory”.

Therefore, El-Erian recommended: “Ride the central bank wave.”

However, he also warned that “all waves eventually break”. When the disconnect between economic fundamentals and the markets revert, it is likely to prove “painful for unhedged investors”.

Elsewhere, a report on Friday showed that China's services sector slowed in April. The non-manufacturing PMI from the National Bureau of Statistics and China Federation of Logistics and Purchasing fell to 54.5 from 55.6 in March.

However, the UK services sector accelerated in April. The services index from Markit Economics and the Chartered Institute of Purchasing and Supply rose to 52.9, the highest in eight months, from 52.4 in March.

Still, the economic weakness in Europe will remain a concern for policy makers, especially after the European Commission lowered its forecast for the eurozone economy on Friday. The Commission now sees the eurozone economy contracting by 0.4 percent this year, worse than its February forecast of 0.3 percent contraction.

The ever-expanding monetary stimulus coming from central banks around the world has raised its own concerns though. The Asia Development Bank's managing director Rajat Nag warned on Friday that while quantitative easing out of Japan and other economies will help them grow, “we have to be wary of building asset bubbles”.

However, the euro fell for the first time in five days against the US dollar after ECB President Mario Draghi said after its monetary policy meeting that it may take the unprecedented step of charging banks to hold excess reserves.

A report from the National Bureau of Statistics and the China Federation of Logistics and Purchasing on Wednesday showed that their manufacturing PMI fell to 50.6 in April from 50.9 in March. A report from HSBC and Markit on Thursday showed that their manufacturing PMI fell to 50.4 in April from 51.6 in March.

There were some signs of recovery in the UK on Wednesday though. The Markit/CIPS manufacturing PMI rose to 49.8 in April from 48.6 in March and house prices rose 0.9 percent in April from a year ago according to Nationwide.

Wednesday, 1 May 2013

Japan reported that household spending jumped 5.2 percent in March from a year earlier, the biggest increase since February 2004. The unemployment rate fell to 4.1 percent in March, the lowest since November 2008.

Japanese industrial production rose 0.2 percent in March. Manufacturers surveyed by the government expect output to rise 0.8 percent in April but fall 0.3 percent in May.

The improvement in Japanese manufacturing is also reflected in the latest purchasing managers survey. The Markit/JMMA manufacturing PMI rose to 51.1 in April from 50.4 in March.

In the US, both consumer confidence and housing provided positive data on Tuesday. The Conference Board's consumer confidence index jumped to 68.1 in April from 61.9 in March while the S&P/Case Shiller index of home prices in 20 cities rose 9.3 percent in February from a year earlier, the biggest increase in almost seven years.

However, the Institute for Supply Management-Chicago business barometer fell below the 50 mark to 49.0 in April from 52.4 in March.